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Saturday, 22 November 2014

After sales of Islamic bonds began the fourth quarter at the slowest pace in six years, sukuk from companies including FlyDubai and Bahrain Mumtalakat Holding Co are among deals announced or sold this week. They will increase the amount raised this quarter to at least $5bn.

“These deals have been in the pipeline and the market volatility in September and October delayed them,” said Abdul Kadir Hussain, the chief executive officer of Mashreq Capital DIFC Ltd, who correctly predicted last week that sales would rebound. “The market seems supportive now and issuers are trying to get them out of the way.”

Bond volatility dropped 32% since reaching a more than one-year high on October 15, according to the Bank of America Merrill Lynch’s MOVE Index, which measures price swings in Treasuries based on options. There is demand for Islamic debt, especially for some of the new issuers, as they offer a higher yield than the more established ones, according to Apostolos Bantis, a credit analyst at Commerzbank AG in Dubai.

FlyDubai, the Dubai-based budget carrier, is selling as much as $500mn in sukuk. Bahrain’s sovereign wealth fund tapped the Islamic bond market for the first time on Tuesday, raising $600mn, while Drake & Scull International issued Shariah-compliant debt earlier this week.

FlyDubai, which is wholly owned by the Dubai government, is said to pay as much as 212.5 basis points above midswaps, the people said. That compares with about 165 basis points over the corresponding midswap that Emirates is paying on its sukuk maturing in March 2023. The airline is the world’s biggest by international passenger traffic.

Global sukuk yields have retreated 17 basis points since reaching a five-month high in October to 2.8% on November 18, according to a gauge compiled by Deutsche Bank AG.

The latest transactions won’t be enough to make for a record sukuk issuance year, Hussain at Mashreq Capital, which manages about $1.2bn, said by e-mail from Dubai on Tuesday. “Net new issuance will be flat to lower,” he said.

Sukuk sales have exceeded $40bn in 2014 compared with last year’s total of $43.1bn, according to data compiled by Bloomberg.

Turkey sold $1bn in 10-year Islamic bonds on Tuesday, the first sukuk offering since October 2013. Advanced Petrochemicals Co in Saudi Arabia said on Tuesday it sold a five-year floating-rate sukuk in a private placement, issuing 1bn riyals ($267mn). Drake & Scull, based in Dubai, also raised $120mn via a five-year sukuk in a private placement.

The issuer base is “widening,” Afaq Khan, chief executive officer of Standard Chartered Saadiq, said by phone on Tuesday. “It’s diversifying portfolios not only in terms of industries, but also geographies and in terms of risk reward so you can have Islamic Development Bank and FlyDubai in your portfolio.

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